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17 Cards in this Set
- Front
- Back
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Types of economic growth |
- actual - potential |
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Actual growth |
- short run - usually due to an increase in aggregate demand- can also be caused due to an increase in aggregate supply |
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Potential growth |
- long run - caused by an increase in the capacity or productive potential - rise in quality or quantity of inputs e.g. more advanced machinery |
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Difference between actual and potential growth |
actual - actually produces more goods and services potential - economy could produce more goods and services |
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PPF |
production possibility frontier |
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The economic cycle |
positive and negative output gap |
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Benefits of economic growth |
- consumers can purchase more goods and services - increase in economic welfare meaning consumers can satisfy more of their needs - actual growth = decrease in unemployment - rise in equality - inflation will fall - improvements in the fiscal position |
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Costs of economic growth |
- real GDP could decrease without an increase in GDP per capita - only actual and not potential growth will cause inflation - economic growth tends to rise inequality - negative externalities e.g. global warming and using up fossil fuels |
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Short run Classical Economic growth diagram |
- shift stuck at B - leave AD - supply side policies 1. reduce trade union power 2. reduce minimum wage 3. cut direct taxes and welfare |
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Short run Keynesian Economic growth diagram
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Fiscal policy - spending increase, tax decrease, deficit increase, multiplier effect increase Monetary policy - i/r increase, money supply increase, e/r decrease |
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Long run Classical Economic growth diagram
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Long run Keynesian Economic growth diagram
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Supply side policies that long run growth will include |
- can affect labour by giving incentives to work such as reducing direct taxes, decrease unemployment benefit and tax credits - changes in retirement age = increase in the working population - more enterprise by reducing business taxes, regulation and increasing competition |
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Demand-side shocks |
- boost in consumer confidence e.g. house prices rising - recession of country's major trading partners = decrease in exports |
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Supply-side shocks |
- poor harvest = price increase = economy's capacity decreasing - new source of raw material = price reduction and supply increase |
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Speculation |
when people buy assets with a hope to sell them later |
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Requirements of sustainable economic growth that make it hard to achieve |
- expand output every year - find a continuous supply of raw materials - growing markets for the increase output - reduce negative externalities e.g. pollution - do this at the same time as other countries with the same objectives |
